| Family Protection
Example: Adam and Eve have two children
aged 9 and 7 and Adam works for a company earning
£40,000 per annum with a stakeholder pension
scheme and no other benefits.
Adam spends much time driving and is
involved in a serious road accident which proves fatal.
The mortgage is paid as the couple had a joint life
term assurance for this purpose.
Eve now receives the widowed parents
allowance plus the child allowance giving her an income
from the state of £5617. If this is her only
income she will also receive income support.
Unless further life cover is in place
Eve will suffer financially even if she has her own
job. This could have been prevented if suitable life
cover had been arranged.
How much cover would have been appropriate
in these circumstances?
The family could probably survive on
80% of Adam’s income, or £32,000. The
life cover would need to be invested sensibly to provide
a rising income. Taking off the state benefits of
£5617 this would leave an income need of £26,383.
Assuming that an investment into income producing
assets yielded 3.5%, life cover of around £750,000
would be needed to be sure of replacing the income
and allowing for a rise to cover inflation. |
